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The Cost of Customer Trust Violations

Lawrence A. Crosby

How easily do customers forget? When transgressions against them are poorly remediated, the memory can be difficult to dismiss.

Twenty-six years ago, I co-authored a Journal of Marketingarticle that helped demonstrate the pivotal role of trust in maintaining the customer relationship. While there are many definitions of trust, we focused our attention on keeping promises, putting the customer’s interests and good, old-fashioned honesty first. Subsequent publications examined the caustic effects of opportunistic behavior on the part of the seller, i.e., taking advantage of the buyer’s vulnerability. At the level of the individual customer experience, the costs of trust violations and malicious self-interest by the seller are well-documented in both B-to-C and B-to-B settings: diminished loyalty, fewer repeat purchases and unfavorable word-of-mouth. 

The costs of trust violations at the individual customer level pale in comparison to trust violations in the company-society relationship, but the two are related. While individual customers may be dissatisfied, that generally results in a slow erosion of reputation if the problems are systemic. However, when a company fails to live up to its end of the bargain, it falls off a reputational cliff and customer dissatisfaction quickly follows, regardless of the direct experience of individuals. Social responsibility is an evaluative criteria employed by many, if not most, customers. By failing to meet society’s expectations, all that hard work in building customer loyalty can quickly evaporate.

The word “scandal” is often associated with trust violations in the company-society relationship. Just recently, the now-former Wells Fargo CEO John Stumpf found himself in the crosshairs of the Senate Banking Committee for failing to stop cross-selling practices that resulted in the opening of more than 2 million unauthorized customer accounts. He was chastised on national TV by Sen. Elizabeth Warren for what she labelled a scam. Warren criticized Stumpf for fostering a high-pressure sales culture that spawned such behavior, all for the ostensible purpose of, according to Warren, driving up share price and lining the pockets of senior management. 

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Lawrence A. Crosby is the retired dean of the Drucker School of Management. He is the chief data scientist at the KH Moon Center for a Functioning Society, a part of the Drucker Institute at Claremont Graduate University.